This is aimed to help you take control of your money so you can look after your family.
The big problem is balancing immediate needs with planning for the future, and everyone will be different here. There are some things you need to think about before you start – it isn’t as simple as just doing a budget in most cases! There are some fundamental values that affect what you do, and it’s also dependent on the stage of life you’re at and your background. There’s no right answer here.
Often there are other people you need to consider – it may be a young family, or aged relatives. In any event, we think there are some fundamental objectives, and these might be:
- Financial Security – this about responsibility for what matters to you
- Financial Freedom – investing in the future and creating opportunities
- Better Ongoing Decisions – doing some things in the right order has a greater impact
You need to work out what’s important to you, and where you’ve got to with your life and your plans. This reflects a possible order of steps to take – feel free to change but please look at each one.
1. This is about what matters most to you
2. Deal with the basics – somewhere to live and something to eat
3. Pay your bills – prioritise (see DebtDrive)
4. Spending and saving
5. Build an emergency fund
6. Get insurance
7. Consider estate planning and do a will
8. Pay down expensive debts
9. Put extra money to use
10. Do what’s important to you – see 1!
What's Important To You
- It’s not about money, it’s about what the money is for. You need to ask yourself: “Why is money important to you?” Keep answering this question until you get to the answer that really matters to you. You’ll know. Then write it down. Then use this as as a yardstick for every financial decision you make in the future – if it helps this goal then do it, if not, think twice.
2. Basics – somewhere to live and something to eat
This is about key responsibilities – don’t worry about the other stuff if you can’t do this. If this is hard, then look at DebtDrive here to see what help you can get.
3. Pay your bills
If you can, this means pay all your bills and also make sure you pay the minimum amounts on your debts. If you can’t manage this, look at our section on debt here.
Create your system and budget
4. Spending and Saving – it’s not just about building your budget. It makes things a lot easier if you also develop a system to manage this on a regular basis – it takes the work out of it and you’re more likely to continue. There are 4 steps to this:
- List your spending – split this between essential or household spending (what you need to carry on living and eating!) and discretionary spending (stuff you could do without if you had to). You can download budget spreadsheets from BudgetDrive More Info.
- Automate your spending and savings – move money automatically into saving and budget accounts BEFORE you get a chance to spend it.
- Look at odd expenses – look at irregular expenses like Christmas and save for them ahead of time so you can afford them.
- Build the right habits – look at the habits which cost you unnecessary money and introduce new habits where possible.
The order of these next three items will vary – we think this is the right order but it may be different for you!
5. Build an Emergency Fund – there’s always something unexpected, and when you’ve got responsibilities e.g. to a family you’ll need at least £1,000-£2,000 in a savings account, which is enough to deal with most unexpected expenses.
6. Get insurance – if there are people who depend on you and your income financially then you should put steps in place so that if anything happens to you they can continue to live and eat. This can involve life insurance and critical illness – to see more go to InsuranceDrive here.
7. Consider estate planning and do a will – whether you’ve got money or not, it’s important to understand what would happen if you died. If you have children, what will happen to them? You should make a will – see WillDrive here.
Once you have got financial security, start to look at how to become financially free.
8. Pay down expensive debts – all your expensive debts cost you more than you are likely to make on savings and investments, so it makes sense to pay these off first if you can.
9. Put extra money to use – you decide the right order for you – these are some things you can do:
a. Pay in to your pension – workplace pension or private – try and put in up to the maximum your employer will – this gives you an immediate 100% return and there are good tax benefits.
b. Next Emergency Fund – build this up ideally to 6 months living expenses
c. Pay off low interest debt – again this is still likely to give you a better return than savings!
d. Invest for the long term – ISAs are a good way to save, and the money is always available.
e. Schooling for kids – this could be helping them get through university or college.
10. Do what’s important to you – go back to what’s important (in step 1) and see what you really want to do – what’s your adventure?